Stock bulls are trying to hang onto thoughts of multiple rate cuts in 2024 by the Fed, but stronger than expected inflationary and economic data are bringing about some doubt.

Retail Sales will be one of the top highlights today with economists expecting a slight dip in January following much stronger than expected December results. Likewise, Industrial Production is expected to pull back a bit while Empire State and Philadelphia Fed Manufacturing Indexes remain in contraction territory. Any signs that consumer buying or manufacturing activity is spiking higher will likely fan worries that the disinflation trend has stalled. That in turn could spark more debate as to when and by how much the Federal Reserve will cut interest rates this year.

Today also brings the Housing Market Index for February, which could generate more interest than usual considering how "shelter costs" are fanning the flames of inflation.

Keep in mind, we also have the Producer Price Index (PPI) coming up tomorrow which will provide wholesale inflation data.

Wall Street has mostly pushed back expectations for the first Federal Reserve rate cut from the March to the May, now to the June meeting and there seems to be much less of a consensus on how many rate cuts we may see or if we see any at all.

The majority on Wall Street still think the Fed will cut three times in 2024 but there are starting to be more and more move toward a lower number of cuts. In fact, real rates have started creeping back higher, with the 10-year yield back north of +4.25%, which in the past has been the point when we start to see more money beginning to flow out of stocks and into bonds.

Bears are also pointing toward Middle East tensions that are again pushing oil prices and shipping costs higher and could ultimately work to keep inflation buoyed at or above current levels, in turn forcing the Fed to keep rates higher for longer.

On the earnings front, the key releases today include Applied Materials, Bridgestone, Deere & Co, DoorDash, DraftKings, Ingersoll Rand, The Southern Company, and Stellantis.

How China Miscalculated Its Way to a Baby Bust:  China’s baby bust is happening faster than many expected, raising fears of a demographic collapse. And coping with the fallout may now be complicated by miscalculations made more than 40 years ago. The rapid shift underway today wasn’t projected by the architects of China’s one-child policy, one of the biggest social experiments in history, instituted in 1980. At the time, governments around the world feared overpopulation would hold back economic growth. A Moscow-trained missile scientist led the push for China’s policy, based on tables of calculations that applied mathematical models used to calculate rocket trajectories to population growth. Four decades later, China is aging much earlier in its development than other major economies did. The shift to fewer births and more elderly citizens threatens to hold back economic growth. In a generation that grew up without siblings, young women are increasingly reluctant to have children, and there are fewer of them every year. Beijing is at a loss to change the mindset brought about by the policy. Births in China fell by more than 500,000 last year, according to recent government data, accelerating a population drop that started in 2022. Following the data release, researchers from Victoria University in Australia and the Shanghai Academy of Social Sciences predicted that China will have just 525 million people by the end of the century. That’s down from their previous forecast of 597 million and a precipitous drop from 1.4 billion now. Source WSJ

Maersk Says Red Sea Detours Could Extend To Second Half Of 2024: An A.P. Moller Maersk official said Wednesday that the shipping giant expects to continue avoiding trade routes through the Red Sea into the second half of the year, a sign that ongoing tensions prompted by Houthi militants’ attacks in the region could pose longer-term challenges to the global shipping industry. Maersk North America’s regional president Charles van der Steene told CNBC that the company doesn’t “see any change in the Red Sea happening soon,” and that customers should expect to see longer transit routes that “could last through Q2 and potentially Q3.” He added that customers should “make sure they have the longer overall transit time built into their supply chain.” Transit times have increased +30 with the rerouting of commercial vessels, according to a recent report from JP Morgan. The report notes that the situation is driving up shipping costs, and those costs could be passed onto the prices of imported goods—potentially sparking fresh inflation worries. However, it also notes that any impact on consumer prices will likely happen on a lag, and could be mitigated or reinforced by other cyclical factors.  Source Forbes

Hezbollah Stokes Mideast Tensions With Strike Against Israel: Tensions between Israel and Hezbollah intensified on Wednesday when Israeli towns and an army base came under what appeared to be the fiercest attacks from Lebanon since the confrontation began four months ago. The assault, presumed to be carried out by Hezbollah fighters based in Lebanon, prompted Israeli fighter jets to launch extensive strikes on the Iran-backed group’s positions. The barrage of missiles from Lebanon hit the town of Safed, about 13 kilometers (8 miles) from the border and deeper into Israel than previous attacks by Hezbollah. The group has been trading fire almost daily with Israel since its war with Hamas erupted in October, though those skirmishes have mostly been contained to the border area. Many Israeli politicians, including members of cabinet, have urged Prime Minister Benjamin Netanyahu and the army to act more aggressively against Hezbollah. Hezbollah’s leader, Hassan Nasrallah, said in a speech Tuesday his organization will continue to attack Israel until it agrees to a cease-fire with Hamas. Mediators from the US, Egypt and Qatar are working to secure an Israel-Hamas cease-fire and the return of about 100 hostages still held by the Palestinian militant group in Gaza. Netanyahu, though, has played down the chances of an agreement.  Source Bloomberg

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Early Adopters of Microsoft’s AI Bot Wonder if It’s Worth the Money: Microsoft is hoping for one of its biggest hits in decades with Copilot for Microsoft 365, an AI upgrade that plugs into Word, Outlook and Teams. It uses the same technology as OpenAI’s ChatGPT and can summarize emails, generate text and create documents based on natural language prompts. Companies involved in testing say their employees have been clamoring to test the tool—at least initially. So far, the shortcomings with software including Excel and PowerPoint and its tendency to make mistakes have given some testers pause about whether, at $30 a head per month, it is worth the price. Microsoft has said that early demand from users is unprecedented and the companies testing it have found it valuable. The company hasn’t shared specifics about sign-ups. Some companies are hesitant to dive into adopting AI technology. A survey from Boston Consulting Group showed that while nearly 90% of business executives said generative AI was a top priority for their companies this year, nearly two-thirds said it would take at least two years for the technology to move beyond hype. About 70% of them were focused only on small-scale and limited tests. Source WSJ

Home Insurance Hurdles Driving Away Would-Be Buyers in Florida: Florida’s southwestern coast — long one of America’s fastest-growing regions — is losing some of its boomtown swagger as a home-insurance crisis and other soaring costs make homes unaffordable. Homeowners from Sarasota south to Naples, known for its eight-figure waterfront mansions, are having a tougher time selling their properties, and the buildup in inventory has caused home prices to fall at some of the fastest rates in the nation. Realtors point to rising insurance costs that were exacerbated by Hurricane Ian in 2022, prompting some homeowners to list their homes for sale and would-be buyers to walk. Homeowners policies across Florida started soaring in 2020 because of what insurers and state regulators attributed to rampant lawsuits and fraud. Rates in the state climbed as much as +33% annually, then shot up another +42% last year in the aftermath of Hurricane Ian. Source Bloomberg

What's Better Than Happiness?  Achieving happiness is a good goal to have in life. But an even better one might be to experience a psychologically rich life. Psychological richness involves varied and intense emotions, diverse and novel experiences, and complex mental engagement with living. Studies correlate psychological richness with curiosity and openness to experience. Feeling happy all the time not only evades many people, adding to feelings of frustration, but it may just lead to a more…boring way to live. Researchers have found that negative emotions can result in positive outcomes. Sadness prompts people to think in a more analytical, clear-eyed way. Anger can boost performance on tasks. Boredom can prompt people to make a change in their life circumstances. Other research suggests that for a lot of people, the intensity of the experience matters more than merely how “positive” or “negative” it was. Source Scientific America

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